London Agreement on German External Debts

The London Agreement on German External Debts, also known as the London Debt Agreement (German: Londoner Schuldenabkommen), was a debt relief treaty between the Federal Republic of Germany and creditor nations.

The London Debt Agreement covered a number of different types of German debt from before and after the Second World War. Some of them arose directly out of the efforts to finance the reparations system, while others reflect extensive lending, mostly by U.S. investors to German firms and governments.[1]

Contents

The parties that were involved besides West Germany included Belgium, Canada, Denmark, France, Great Britain, Greece, Iran, Ireland, Italy, Liechtenstein, Luxembourg, Norway, Spain, Sweden, Switzerland, South Africa, the United States, Yugoslavia and others. The states of the Eastern Bloc were not involved. The negotiations lasted from February 27 to August 8, 1953.[1]

The total under negotiation was 16 billion marks of debt resulting from the Treaty of Versailles after World War I which had not been paid in the 1930s, but which Germany decided to repay to restore its reputation. This money was owed to government and private banks in the U.S., France and Britain. Another 16 billion marks represented postwar loans by the U.S. Under the London Debts Agreement of 1953, the repayable amount was reduced by 50% to about 15 billion marks and stretched out over 30 years, and compared to the fast-growing German economy were of minor impact.[2]

An important term of the agreement was that repayments were only due while West Germany ran a trade surplus, and that repayments were limited to 3% of export earnings. This gave Germany’s creditors a powerful incentive to import German goods, assisting reconstruction.[3]

Some of the agreement included debts to be paid after the reunification of Germany. Over decades it seemed unlikely to transpire, but in 1990 another 239.4 million Deutschmark of unpaid coupons were revived. On 3 October 2010 the last payment was made of 69.9 million euro.[4] This is often considered to be the last payment by Germany on all known debts resulting from both world wars - but see below, on the claim by Greece.

In January 2015, in course of the 2015 Greek legislative election and amidst the Greek government-debt crisis, SYRIZA leader Alexis Tsipras promised to demand debt reduction and "the money Germany owes us from World War Two, including reparations".[5] According to Der Spiegel,[6] certain commentators have linked this to repayment of a 476 million reichsmarks zero interest loan that occupied Greece had been forced to give Nazi Germany. The loan corresponds to $14 billion in 2012, or $95 billion if 3% interest had been accrued over 66 years. According to commentator Tim Worstall, if the loan is considered war damage then it would be covered by the Agreement on German External Debts, and therefore no longer owed. If the loan was considered a normal credit, then the 0% interest would be valid, making the $14 billion owed an amount too small to make Greece's 2015 debt of 177% of GDP manageable.[7]